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624CG entitled 'Saving Our Future Requires Tough Choices Today' which
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United States Government Accountability Office:
Saving Our Future requires Tough Choices Today:
Fiscal Wake-up Tour:
Cincinnati, OH:
March 9, 2007:
The Honorable David M. Walker:
Comptroller General of the United States:
Composition of Federal Spending:
[See PDF for image] - graphic text
3 pie charts with 5 items each.
1966:
Defense: 43.0%;
Social Security: 15.0%;
Medicare & Medicaid: 1.0%;
Net interest: 7.0%;
All other spending: 34.0%.
1986:
Defense: 28.0%;
Social Security: 20.0%;
Medicare & Medicaid: 10.0%;
Net interest: 14.0%;
All other spending: 29.0%.
2006:
Defense: 20.0%;
Social Security: 21.0%;
Medicare & Medicaid: 19.0%;
Net interest: 9.0%;
All other spending: 32.0%.
Source: Office of Management and Budget.
Note: Numbers may not add to 100 percent due to rounding.
[End of figure]
Federal Spending for Mandatory and Discretionary Programs:
[See PDF for image] - graphic text
3 pie charts with 3 items each.
1966:
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.
1986:
Discretionary: 44%;
Mandatory: 42%;
Net Interest: 14%.
2006:
Discretionary: 38%;
Mandatory: 53%;
Net Interest: 9%.
Source: Office of Management and Budget.
[End of figure]
Fiscal Year 2005 and 2006 Deficits and Net Operating Costs:
Dollars in billions.
On-Budget Deficit;
Fiscal Year 2005: ($494);
Fiscal Year 2006: ($434).
Unified Deficit[A];
Fiscal Year 2005: ($318);
Fiscal Year 2006: ($248).
Net Operating Cost[B];
Fiscal Year 2005: ($760);
Fiscal Year 2006: (450).
Sources: The Office of Management and Budget and the Department of the
Treasury.
[A] Includes $173 billion in Social Security surpluses for fiscal year
2005 and $185 billion for fiscal year 2006; $2 billion in Postal
Service surpluses for fiscal year 2005 and $1 billion for fiscal year
2006.
[B] Fiscal year 2005 and 2006 net operating cost figures reflect
significant but opposite changes in certain actuarial costs. For
example, changes in interest rates and other assumptions used to
estimate future veterans' compensation benefits increased net operating
cost by $228 billion in 2005 and reduced net operating cost by $167
billion in 2006. Therefore, the net operating costs for fiscal years
2005 and 2006, exclusive of the effect of these actuarial cost
fluctuations, were ($532) billion and ($617) billion, respectively.
[End of table]
Major Reported Long-Term Fiscal Exposures ($ trillions):
Explicit liabilities (Publicly held debt, military & civilian pensions
& retiree health, other);
2000: $6.9;
2006: $10.4;
Percent Increase: 52%.
Commitments & Contingencies: e.g., PBGC, undelivered orders;
2000: $0.5;
2006: $1.3;
Percent Increase: 140%.
Implicit exposures;
2000: $13.0;
2006: $38.8;
Percent Increase: 197%.
Implicit exposures: Future Social Security benefits;
2000: $3.8;
2006: $6.4;
Percent Increase: [Empty].
Implicit exposures: Future Medicare Part A benefits;
2000: $2.7;
2006: $11.3;
Percent Increase: [Empty].
Implicit exposures: Medicare Part B benefits;
2000: $6.5;
2006: $13.1;
Percent Increase: [Empty].
Implicit exposures: Medicare Part D benefits;
2006: $8.0;
Percent Increase: [Empty].
Total;
2000: $20.4;
2006: $50.5;
Percent Increase: 147%.
Source: 2000 and 2006 Financial Report of the United States Government.
Note: Estimates for Social Security and Medicare are at present value
as of January 1 of each year and all other data are as of September 30.
Totals may not add due to rounding. Percentage increases are based on
actual data and may differ from increases calculated from rounded data
shown in table.
[End of table]
Understanding the Size of Major Reported Fiscal Exposures:
Our fiscal burden can be translated and compared as follows:
2006 data:
Major reported fiscal exposures: $50.5 trillion.
Total household net worth: $53.3 trillion:
* Ratio of fiscal exposures to net worth: 95 percent.
Burden:
Per person: $170,000;
Per full-time worker: $400,000;
Per household: $440,000.
Income:
Median household income: $46,326;
Disposable personal income per capita: $31,519.
Ratio of household burden to median income: 9.5.
Sources: GAO analysis of data from the Department of the Treasury,
Federal Reserve Board, U.S. Census Bureau and Bureau of Economic
Analysis.
[End of table]
Potential Fiscal Outcomes:
Under Baseline Extended (January 2001) Revenues and Composition of
Spending as a Share of GDP:
[See PDF for image] - graphic text:
Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars
per group.
2005;
Net interest: 0.8%;
Social Security: 4.3%;
Medicare & Medicaid: 3.7%;
All other spending: 8.0%;
Revenue: 20.3%.
2015[A];
Net interest: 0%;
Social Security: 5.1%;
Medicare & Medicaid: 4.9%;
All other spending: 5.6%;
Revenue: 20.4%.
2030[A];
Net interest: 0%;
Social Security: 6.6%;
Medicare & Medicaid: 9.4%;
All other spending: 4.0%;
Revenue: 20.4%.
2040[A];
Net interest: 0%;
Social Security: 6.7%;
Medicare & Medicaid: 9.0%;
All other spending: 4.4%;
Revenue: 20.4%.
Source: GAO's January 2001 analysis.
Notes: In addition to the expiration of tax cuts, revenue as a share of
GDP increases through 2017 due to (1) real bracket creep, (2) more
taxpayers becoming subject to the AMT, and (3) increased revenue from
tax-deferred retirement accounts. After 2017, revenue as a share of GDP
is held constant-implicitly assuming action to offset the impact of
bracket creep and to modify or offset the AMT.
[A] All other spending is net of offsetting interest receipts.
[End of figure]
Potential Fiscal Outcomes Alternative Simulation-Discretionary Spending
Grows with GDP and Expiring Tax Provisions Extended (January 2007)
Revenues and Composition of Spending as a Share of GDP:
[See PDF for image] - graphic text:
Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars
per group.
2006;
Net interest: 1.7%;
Social Security: 4.2%;
Medicare & Medicaid: 3.9%;
All other spending: 10.5%;
Revenue: 18.4%.
2015;
Net interest: 2.1%;
Social Security: 4.6%;
Medicare & Medicaid: 4.9%;
All other spending: 9.6%;
Revenue: 17.6%.
2030;
Net interest: 5.9%;
Social Security: 6.8%;
Medicare & Medicaid: 8.3%;
All other spending: 9.5%;
Revenue: 17.8%.
2040;
Net interest: 12.1%;
Social Security: 7.6%;
Medicare & Medicaid: 10.3%;
All other spending: 9.5%;
Revenue: 17.8%.
Source: GAO's January 2007 analysis.
Notes: AMT exemption amount is retained at the 2006 level through 2017
and expiring tax provisions are extended. After 2017, revenue as a
share of GDP is held constant-implicitly assuming action to offset the
impact of bracket creep and to modify the offset of AMT.
[End of figure]
Current Fiscal Policy Is Unsustainable:
The "Status Quo" is Not an Option:
* We face large and growing structural deficits largely due to known
demographic trends and rising health care costs.
* GAO's simulations show that balancing the budget in 2040 could
require actions as large as:
- Cutting total federal spending by 60 percent or:
- Raising federal taxes to 2 times today's level:
Faster Economic Growth Can Help, but It Cannot Solve the Problem:
* Closing the current long-term fiscal gap based on reasonable
assumptions would require real average annual economic growth in the
double digit range every year for the next 75 years.
* During the 1990s, the economy grew at an average 3.2 percent per
year.
* As a result, we cannot simply grow our way out of this problem. Tough
choices will be required.
The Way Forward: A Three-Pronged Approach:
1. Improve Financial Reporting, Public Education, and Performance
Metrics:
2. Strengthen Budget and Legislative Processes and Controls:
3. Fundamental Reexamination & Transformation for the 21St Century
(i.e., entitlement programs, other spending, and tax policy):
Solutions Require Active Involvement from both the Executive and
Legislative Branches:
Key National Indicators:
What: A portfolio of economic, social, and environmental outcome-based
measures that could be used to help assess the nation's and other
governmental jurisdictions' position and progress:
Who: Many countries and several states, regions, and localities have
already undertaken related initiatives (e.g., Australia, New Zealand,
Canada, United Kingdom, Oregon, Silicon Valley (California) and
Boston):
Why: Development of such a portfolio of indicators could have a number
of possible benefits, including:
* Serving as a framework for related strategic planning efforts:
* Enhancing performance and accountability reporting:
* Informing public policy decisions, including much needed baseline
reviews of existing government policies, programs, functions, and
activities:
* Facilitating public education and debate as well as an informed
electorate:
Way Forward: Consortium of key players housed by the National Academies
domestically and related efforts by the OECD and others
internationally:
Key National Indicators: Where the United States Ranks:
The United States may be the only superpower, but compared to most
other OECD countries on selected key economic, social, and
environmental indicators, on average, the U.S. ranks:
16 0ut Of 28:
OECD Categories for Key Indicators (2006 OECD Factbook):
Population/Migration;
Energy;
Environment;
Quality of Life;
Macroeconomic trends;
Labor Market;
Education;
Economic Globalization;
Prices;
Science & Tech;
Public Finance.
Source: 2006 OECD Factbook.
Moving the Debate Forward:
The Sooner We Get Started, the Better:
* The miracle of compounding is currently working against us:
* Less change would be needed, and there would be more time to make
adjustments:
* Our demographic changes will serve to make reform more difficult over
time:
Need Public Education, Discussion, and Debate:
* The role of government in the 21St Century:
* Which programs and policies should be changed and how:
* How government should be financed:
These Challenges Go Beyond Numbers and Dollars-It's About Values and
People:
Source: GAO.
On the Web:
Web site: [Hyperlink, http://www.gao.gov/cghome.htm]:
Contact:
Paul Anderson, Managing Director, Public Affairs AndersonP1@gao.gov
(202) 512-4800:
U.S. Government Accountability Office 441 G Street NW, Room 7149
Washington, D.C. 20548:
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